TelePlus (TLPE) rose 20% Tuesday on news of a 40% increase in handset sales.

Tonight we review  China Digital (CHID) who has projected a triple digit sales increase for the 1st quarter of '05. While we do not give "buy" recommendations or entry and exit points, the share price for CHID is near its 52 week low and becomes very compelling when weighed against its recent achievements. 

China Digital (CHID)

Powering China??™s $2.1 Billion Battery Market

''Due to sharply higher demand, CHID has increased its production force 12% by hiring 65 new production employees in March 2005.'

For the Full Profile on CHID please visit http://www.smallcapreview.com/chid.htm

Company Website: http://www.chinadigitalgroup.com

A Model For Growth

The key to CHID's growth lies in the soaring demand for mobile digital products and power sources. The record of its subsidiary shows just how fast this market is expanding.

E'Jenie (CHID's subsidiary) was founded three years ago with one steel-shell production line. It quickly took advantage of China's rocketing demand for mobile phones, adding three more production lines before the end of its first year. By the end of 2003, it had 14 steel-shell production lines. In 2004, the year of its acquisition by CHID, it bought five aluminum-shell production lines, added to a pair of battery-cap lines purchased earlier. The upshot of all this is a projected manufacturing volume of 100 million product units in 2005.

Why such rapid growth? The answer can be found in the sharply rising demand for new mobile phones in China. Not only are more Chinese consumers buying the phones, but current users are also constantly upgrading as new phones with new features are introduced into the market. A mobile-phone battery has a typical usage life of 300 to 500 recharges, which translates to a ratio of 1.8 batteries in service life of each phone according to official Chinese statistics. However, battery replacement demand is faster than this when consumers turn in their phones for new models before the normal life of the battery is over. A short product life combines with a short product innovation cycle to create rapid product turnover - and plenty of business for battery shell makers.

All told, China's domestic mobile phone battery market is expected to expand in 2005 to 570 million units, up from 450 million in 2003. The worldwide market will see a two-year rise to 2.52 billion from 2.16 billion. In dollar terms - more meaningful for CHID investors - domestic battery sales in China are expected to rise to $2.1 billion in 2005, up $264 million or more than 14% from 2004.

CHID??™s Proven Growth Strategy to Accelerate Sales and Earnings Growth in 2005

Through the first nine months of 2004, CHID recorded pro forma sales of $2.76 million, nearly all of which was revenues of the now-acquired E??™Jenie. Since then, it has seen a sharp rise in revenue from sales of its new aluminum battery shell (ABS) line, which first went on the market in October 2004. Within only three months, the ABS line has produced $950,000 in new sales, or 18% of the Company??™s entire projected revenue for 2004.

ABS is at the heart of CHID??™s growth strategy. Based on the fourth-quarter 2004 sales figures, it??™s easy to see why. Battery makers are demanding aluminum shells and caps for a number of reasons. ABS components give batteries better electric conductivity, they are lighter than steel and they allow more capacity. They also may be safer. In reports of battery explosions and other accidents, CHID says ABS appears to be linked to low injury rates compared to steel components. ABS also has a cost advantage over steel. Though ABS products are sold at prices close to those of competing steel items, their raw material costs are much lower. CHID says the profit margin of ABS products, at more than 30%, beats steel for these reasons.  

CHID Investment Highlights

• Preliminary factory data for the first quarter of 2005, shows rapid sequential growth in its production of battery shells and caps. In response to high product demand it increased its production force by 12% when it hired 65 new production employees during March 2005.

• Shenzhen E'Jenie unaudited pro forma sales for fiscal year 2004 totaled approximately $5.18 million, up 151% from approximately $2.06 million in 2003.
• Shenzhen E'Jenie unaudited pro forma net income was approximately $245,000 for 2004, compared to net income of $132,000 in 2003.
• Based on initial estimates for the quarter ended March 31, 2005, the total production of shells and caps at China Digital's Shenzhen E'Jenie unit reached 63.85 million units, 25% higher than the 51.21 million units produced in the prior quarter, ended December 31, 2004. The increase was due to sharply higher demand for caps (up 42%) and aluminum shells (up 69%).

• China Digital is one of the fastest growing providers of power supply components for China's large and fast growing markets in mobile phones and other products.

• CHID has double-digit sales and earnings growth and a solid customer base in China's Shenzhen manufacturing center.

• CHID's new line of aluminum battery shells offer improved safety, capacity and electric conductivity over older steel models. Three months after the models have been introduced, sales are soaring. 

• CHID has a strong balance sheet with $400,000 in cash and no long term debt.

• Recently announced that it has opened its first office in the United States. The Los Angeles-based office will serve as the new center of its operations in North America. The opening of this new office is part of the Company's overall strategy to begin its penetration of the U.S. market for its battery shells and other products and to increase its exposure to the U.S. investment community.
• Announced that it will move its manufacturing operations to a new location in the Shenzhen region, providing it with 40% more production capacity. The new plant will provide E'Jenie a manufacturing area of nearly 65,000 square feet, up 50% from the 43,000 square feet at the current location.
• Expanded its research and development team to help develop and improve a new series of product lines. It also detailed steps taken recently to lower its operating and procurement costs.
• The company owns its own research and development arm, which has just recently developed a proprietary technology of preventing air leaks on aluminum battery caps.

Profile

China Digital (OTC BB: CHID), is a U.S. corporation with its business headquarters in Shenzhen, one of China's key manufacturing centers. Its primary business is the manufacture of components for batteries used in mobile phones, digital cameras, PDAs, laptop computers and other digital devices. The company has set a strategic goal of becoming the largest telecom-equipment producer, marketer and distributor in China, with a significant presence in the U.S. market as well.

With China becoming the world's manufacturing hub for cell phones and other digital mobile devices, CHID's wholly owned subsidiary E'Jenie is strategically positioned to supply vast numbers of battery shells for lithium-Ion batteries, an industry standard in today's digital world. With the E'Jenie acquisition, CHID is now a major presence in Chinese electronics manufacturing, with some 500 employees and potential to serve the worldwide market. U.S. investors are now able to gain a direct stake in a crucial part of the fast-growing market for electronic components in and outside of China.

Recent News and Press Releases

China Digital Communication Group Projects Triple-Digit Increase in Sales for First Quarter 2005

China Digital Reports Sharp Production Increase in First Quarter

China Digital Communication Group Announces Revenue Growth of over 150% in Operating Subsidiary

China Digital Communication Group to Expand R&D Operations in Shenzhen, China

China Digital Opens U.S. Headquarters

For more information on CHID please visit http://www.smallcapreview.com/chid.htm

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